CFTC Sues Binance and CEO ChangPeng Zhao
- Binance has faced increased scrutiny in the United States.
- US regulators have accused Binance of operating illegally in the country.
- The SEC is reportedly investigating if Binance helped US users access unregistered securities.
A filing on Monday confirmed that the U.S. Commodity Futures Trading Commission (CFTC) has sued crypto exchange Binance, its CEO Changpeng Zhao, and Chief Compliance Officer Samuel Lim. The regulator claims the parties involved violated trading and derivatives rules.
The CFTC filed the lawsuit in a Chicago federal court, claiming that Binance, Lim, and Zhao “disregarded federal laws” for U.S. financial markets. The lawsuit noted that Binance has carried out trading operations since 2019 in the US and allowed residents to carry out swaps, futures, and trade options on cryptocurrencies like Litecoin, Ethereum, and Bitcoin.
The CFTC also accused Binance of expanding its presence in the United States despite claims that it would restrict US residents from accessing the exchange. The regulator alleged that Binance failed to register its services and ignored the requirements for making its services credible in the US. The CFTC has been investigating Binance since 2021, and the lawsuit indicates its desire to take steps.
The suit added that
Binance has taken a calculated, phased approach to increase its United States presence despite publicly stating its purported intent to ‘block’ or ‘restrict’ customers located in the United States from accessing its platform.
The suit claims that Binance undermined its compliance program by allowing its employees, agents, and officers to hide their location using a virtual private network (VPN). Reports emerged last week accusing Binance of aiding users in China to bypass current sanctions to access its platform.
The lawsuit claims that Binance’s refusal to reveal where its executive offices are located is indicative of the exchange’s efforts to circumvent regulation. The CFTC alleges that Binance broke laws intended to stop and deter money laundering and terrorism financing.
The CFTC wrote,
Binance has never been registered with the CFTC in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets. Unless restrained and enjoined by this Court, defendants are likely to continue to engage in the acts and practices alleged in this complaint.
Interestingly, the suit featured messages taken from Zhao’s phone that were sent using Signal. The messages showed where the Company’s CEO instructed Binance staff to use Signal to contact clients in the United States.
Reacting to the lawsuit, acting director of the division of enforcement at the CFTC Gretchen Lowe said the messages showed that “Binance’s compliance efforts have been a sham and Binance deliberately chose—over and over—to place profits over following the law.”
The CFTC reportedly wants Binance to pay back supposedly ill-gotten profits and agree to trade restrictions. A Binance spokesperson however refuted the claims made in the lawsuit, noting that the exchange has made “significant investments over the past two years to ensure we do not have U.S. users active on our platform.”
The Binance spokesperson said,
The complaint filed by the CFTC is unexpected and disappointing, as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world. The best path forward is to protect our users and collaborate with regulators to develop a clear, thoughtful regulatory regime.
Earlier this year, Binance acknowledged that it expected to face increased scrutiny in 2023 and was working to improve its relationship with regulators. Binance has also been probed by the Internal Revenue Service for its compliance with anti-money laundering regulations. In addition, the Securities and Exchange Commission is also investigating if Binance helped US residents access unregistered securities.